Aviation Assignment: US Airlines Industry
Added on 2020-05-28
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1.Introduction:Drones a are pilotless aircraft, traditionally considered as a military weapon; has nowdeveloped various application in almost every field of life. Drones are around us in differentforms since last one century. Drone is a rapid growing industry whose revenue is risingexponentially with each year and is now being regulated by Federal Aviation Administration(FAA). The strategic and competitive environment has been assessed via Porter’s model of fiveforces. Numeric data has also been collected to analyze cost advantages of using dronetechnologies.2.Background:UAV which is “Un-manned Aerial Vehicle” is a scientific name of the technology whichwe generally known as “Drones”. The concept of UAVs originated back in 1849 during the firstItalian independence war against Austrian, when Austrian used pilotless balloons carryingexplosive material to attack over Venice (Finding Dulcinea News, 22 August 2011). Although itwas not a total success because of its reliance on mere air but it laid the foundation of the drone’stechnology which we see now a day. First pilotless aircraft named Kettering Bug developed byUS military, appeared on world map in 1916 which can be regarded as a cruise missile (Fortune,9 October 2014). In 1930, US navy started their research on RC or radio-controlled aircraftwhich led to the formation of Curtiss N2C-2 drone in the mid of 1937. The very first massedproduction of RC aircraft is witnessed during world war-II by Reginald Denny who named itstechnology as Radio plane 0Q-2 and is considered as a breakthrough point in manufacturing andsupply of drones (CONSORTIQ, 16 June, 2017). The first non-military use of drones appeared in 1993 when they had been used to monitorclimate and environment changes (redOrbit, 25 May 2016). Moreover, general use as toys aswell as camera shots gain popularity from mid-to-late 2000s when numerous companies shifttheir focus towards shipping and vehicular drones to replace human intelligence as well as errors(Air&Space, 19 May 2017). In 2010, French company Parrot manufactured and released firstsuccessful ready to fly consumer drone which established the connection merely via Wi-Fi. To
gain a competitive advantage, online retailer giant Amazon; in the late 2013 announced itsproject to deliver parcels via drones (WIRED, 31 March 2017). Upon rise in the usage of drones;FAA established rules and regulations to manage drone flights without compromising publicsafety and security (Federal Aviation Administration, 21 December 2015). These regulationsinclude maintain altitude under 400 feet and it is to be only flown by person having remote pilotcertificate and not allowed to operate beyond pilot’s line of sight (Goldman Sachs, 2017). Todaywe see drones equipped with state-of-the-art technologies like 3d-mapping, 360-degreeprofessional cameras, sensors like UAV, Barometer, distance, heat, depth measurement etc. andhave numerous applications in agriculture, construction, media, real estate, science, mining,private security, rescue operations and wildlife. Recent data shows a potential compound annualrise of 19% in the commercial and civilian drone sector by 2020, as opposed to just 5% growthin military market (Goldman Sachs, 2017).3.Competitive Environment:The dynamic external environment in which an industry or a business operates is, itscompetitive environment which includes direct and indirect competitors as well and more sellersof the identical product means high competitive environment. Factors like world economiccondition, events, labor shortage and natural disasters affect the environment. The competitiveenvironment facilitates the connection between organizational performance and organizationalalignment and it is a prominent factor affecting its performance so, managers should take it intoaccount while formulating strategic decisions. (Cao, Baker & Hoffman, 2012.)Since the drone industry is still an emerging technology, it operates in a highly competitiveenvironment and companies like Parrot France(62%), 3d robotics USA(56%), USA (26%) andCyber Technology Australia (17%) are top key players giving stiff competition to each other(DRONEII, 20 July 2015).3.1Five Forces Analysis:Model of Porter’s five competitive forces is an efficient tool to analyze industry structureof an organization in strategic processes. The central vision is that the corporate strategy must beable to meet the opportunities and threats that an organization face in its external environment.
By knowing the most compelling and impactful force in the industry; will help the managers incategorizing the significant parameters affecting the firm’s performance and profitability in thatspecific domain and help them exploiting particular characteristics of their industry (Crain &Michael, 2010).3.1.1Threat of Entry of New Competitors:Barrier or obstacles in entry stops entrepreneur from entering into a specific market. Theyact as a warning against new entrants. There are several barriers to entry into drone industryincluding laws, rules, latest technologies, cost etc. Since the economies of scales assistmanufacturers to reduce their cost by fabricating the next unit of output at comparatively lowercost. Meanwhile, when new rivals enter, because of the fact that they possess smaller economiesof scale; they ultimately face a higher cost of production (South China Morning Post, 02 March2016). In the case of drone industry, learning curve is high which requires new entrants to devotetime as well as money to study the market thoroughly. Besides all these fact, since the droneindustry is an emerging business making threat of new competitors real. Because of low cost ofentry and accessibility of state-of-the-art technology to everyone allows the startup entrepreneursto enter without significant hurdles. Regardless of stiff competition among existing companies,several beginners are availing the advantages of full potential drone’s proposal. For example,despite having revenue kings like Parrot, DJI and 3DR; a comparatively small German industryAir Robot gave a surprise upon winning the tender for becoming industry partner of US BSNFRailway inspection program (DRONEII, 15 October 2015).3.1.2Bargaining Power of Customers:The market can mainly be divided among two main type of service providers i.e.generalists and specialists. Knowledgeable as well as well-informed customers are ready to payany amount to get the supposed/desired quality presented by highly experienced and skilledmanufacturers (Suwardy & Ratnatunga, 2014). Since majority of the clients of drone industry which can be categorized specialists as theyrequired customized product tailored to their operation for example construction, film industry,agriculture, media, military, oil & gas refineries, coast guards; they are well educated and well
informed. Moreover, use of drones to carry out operations significantly reduce their expenses.So, they are less sensitive to the prices and they end up paying even high amount. Thus, thebargaining power of the customers can be regarded as weak in this case and client’s capacity tobargain is practically nullified by the structure of the industry.3.1.3Threats of Substitute Products:As far as the substitutes are concern, customers may have a choice, they may be undersome circumstances ready to accept alternative services for limited time if it suffices their needsor to save money for short term but in most of the scenarios these substitutes can not be used forlong term (Ndanga et al, 2015). For example, if a company is required to conduct a field surveyfor single time, it might opt to conduct it manually than buying a whole batch of drones whichwill be of no use after single use.Although the drone industry is providing alternatives to several well-known industry proceduresbut still the possible threat of returning back to traditional products cannot be eliminated. As theprice of alternate methods of doing things are high so there is a minimal threat of reverting backto them. As oil & gas industries taking advantage of its thermal imaging and gas sniffertechnologies to conduct their thousands of miles of pipelines as well as oil rigs. Sky future adrone manufacturer turned this into a competitive advantage and already invest $9.5m in projectswith BP, shell, Conoco Philips (Harvard Business Review, 29 June 2016). Moreover, the need ofthe drones is rising every day; subject to the available technology in future, there is a little threatof substitute products. 3.1.4Intensity of Existing Rivalry:Collectively organizations rely on each other for success. A firm is comprised of severalmarkets in which they are contending against numerous competitors. This multipoint rivalry is aproper demonstration of competitive network which infers the mutual interdependence of firmsand in high intense rivalry senior management processes are focused on avoidance of errors (Xu,2011).Policies defined by government can dictate the amount of rivalry within industry. Since it is anew industry and its revenue is rising swiftly so they are less probable to rival against each other
because the overall size of industry is also growing. It allows several firms to flourish withoutstealing market share. Although competition among few drone giants rises in the past year.Chinese private drone manufacturer company DJI gained a stiff competitive edge in the marketby the release of its marvelous model SPARK, on the other hand its closest competitor GoPro isrecalling its Karma Drone after technical failures which resulting in a competitive edge to DJI(Dow Jones, 31 May 2017). Regardless of its large and free market structure, few zones of thisindustry are susceptible to high rivalry, especially in military applications. This part is incommand of large developers of weapons or several government firms including defensecontractors. This sub-industry is dominated by large weapons developers, defense contractors, ordirect branches of various government organizations. In billions of dollars weapons industry, theinnovations in this specific zone of industry are generally undisclosed.This freshly developed industry has left numerous arenas unexplored, restricting the intensity ofrivalry from existing firms. As the new aspirants form the trust within customers they willultimately result into strong competition in future. 3.1.5Bargaining Power of Suppliers:The case when suppliers power is high, industry tends to lowers the cost to get aboveaverage returns and cost reduction give them a competitive advantage over others; experiencecurves effects and economies of scale are helpful to generate cost based advantage (Fuentes-Fuentes, Lloréns-Montes & Albacete-Sáez, 2007).Since as opposed to buyers; suppliers are in concentrated numbers and there is no reasonablesubstitute available in the market and buyers are disintegrated means there are several buyers butneither of them constitute a big portion of sales; this all make supplier power high (The DroneIndustry, 2017). There is strong possibility that in future when drone industry is fully developedand rivalry amongst suppliers is high then prices tend to decline and low bargaining power willbe observed. 3.2. Quantitative analysisInvestigating the statistical indicators of the quantitative analysis presented, it will be possible toconsecrate the main prospects for the growth of the drones industry. The analysis promotes study
of the market sustainability status and its business success both within countries and on theinternational scene. In addition, without a detailed quantitative analysis, it is unlogical tosummarize the results and conclusions of this work.For starters, we should mention the costs ofcreating drones. The costs are determined by the technology, on the basis of which the drone iscreated and the development approach. These include:- Components, parts and materials- Machine toolsGlobal market of Un-manned Arial Vehicle accounts for a significant growth on aerialplatform. Today, defense ministry of several nations uses UAVs having several features acrossthe world. The global demand is fuelled with successful use of UAV system in combatingoperation by Afghanistan and Iraq (Atwater 2015). The rapidly growing drone industry with use of intensively developed software andhardware takes an important place in different industry. These industries are agriculture,management of land, construction and energy industry. In the global aerial drone market, the lionshare is captured by the defense industry.
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